Small Business

One of the more significant developments in 2018 for both small business primes and large companies with small business subcontractors was the passage of the Small Business Runway Extension Act (the “Act”), which was signed into law December 17, 2018. The Act, in amending the Small Business Act, increases the look-back period for determining a contractor’s size status based on average annual revenues from three years to now five years. For many services-based procurements, a contractor must average its annual receipts over a certain period to determine if it falls under the revenue-based size standard for the opportunity, and if so, whether it is a small business for that contract. The Act expands this period from the prior period of three years to now five years. Although not without its detractors, the Act has generally been hailed as a positive, and much needed, development for contractors pursuing set aside contracts, because it gives them more room to grow, and remain small, in order to bid on and capture the increasingly complex requirements being procured by the government. The new law also allows contractors to even out a particular year of higher than average revenue with the revenues of more representative years and still remain small, thus resulting in a more accurate representation of the contractor’s size status. Continue Reading The Small Business Runway Extension Act: Contractors Are Not Cleared for Take Off

Today, the SBA issued major proposed rule changes to the HUBZone program. This is the first comprehensive revision to the HUBZone rules since the program’s implementation nearly 20 years ago, and the changes are intended to improve the predictability and stability of the program for participants.

In general, to qualify as a HUBZone firm, the firm must have its principal place of business located in a HUBZone (historically underutilized business zone) and 35% of their employees residing in one or more HUBZones. The advantages of being a certified HUBZone small business are enormous. Not only do HUBZone firms qualify for HUBZone small business set-aside contracts, they also qualify for a 10% price preference against non-small business offerors on unrestricted procurements (FAR 19.1307). The problem, however, is that the HUBZone map regularly changes due to changes in economic data (though Congress recently issued a partial freeze to the map until SBA is able to update the zones following the 2020 decennial census), and in many industries a firm’s ability to maintain a 35% HUBZone-resident workforce is heavily dependent on the location of the contracts it wins.

SBA’s proposed rule changes would make it significantly easier for contractors to maintain their HUBZone status once certified. Among the most significant changes are:

An individual will continue be treated as a HUBZone resident if that individual worked for the firm and resided in a HUBZone at the time the concern was certified or recertified as a HUBZone small business concern and he or she continues to work for that same firm, even if the area where the individual lives no longer qualifies as a HUBZone or the individual has moved to a nonHUBZone area.

Certified HUBZone firms would only be required to do annual recertification, rather than immediate recertification at the time of every offer for a HUBZone contract award. A HUBZone small business concern would then represent that it is a certified HUBZone small business concern at the time of each offer, but its eligibility would relate back to the date of its certification or recertification, not to the date of the offer. This would allow certified HUBZone small businesses to remain eligible for future HUBZone contracts for an entire year, without requiring it to demonstrate that it continues to meet all HUBZone eligibility requirements at the time it submits an offer for each additional contract.

Stay tuned for more on these proposed rule changes in the coming weeks and months. Comments to SBA on the proposed rule changes are due Dec. 31.

The continued initiative from Alaska Senators has recently brought about a reinterpretation of the requirements imposed by the Small Business Administration’s “8(a)” program – aimed at helping companies owned by minorities and disadvantaged groups compete in federal contracting. In 1986, Congress expanded the “8(a)” program to include Alaska Native Corporations (ANCs) and Indian tribes. After the 1986 8(a) expansion, ANCs received many sole source federal defense contracts. ANCs thrived under this procurement model, but their success in federal contracting was scrutinized by some in Washington D.C.

The 2010 National Defense Authorization Act (NDAA) changed the law relating to 8(a) procurement and specifically to sole source procurements then valued at over $20 million. For defense contracts, the 2010 law required, among other things, the contracting officer obtain approval from the respective secretaries of the military branches. DoD entities interpreted the language to mean that, rather than securing approval from a designee, they had to obtain approval from the actual branch secretary. The burden associated with this perceived requirement proved so prohibitive that contracting officers largely abandoned their sole source authority for ANCs for any procurements affected by the new law. The change to sole source contracting (which became effective through the Federal Acquisition Regulation in March 2011) had a significant adverse impact on ANCs, drastically reducing the use of this once abundant procurement model. Indeed, by some accounts, the change has decreased awards of federal defense contracts to ANCs by over 80%, thus significantly impacting what was once a powerful economic growth engine for ANCs and village corporations.

Recently, however, the Army, Navy and Air Force through a series of internal memoranda have adopted a more sensible reading of the statue, agreeing to reinterpret the approval requirements imposed by the 2010 NDAA law. Instead of requiring the actual signature of the secretary of these branches, the Army, Navy and Air Force now agree that contracting officers can once again award sole source contracts to ANCs by obtaining approval from a proper designee of the secretary of the agency, without getting the actual signature of the secretary themselves, a prohibitively burdensome requirement. This more sensible interpretation may reopen the door to federal contracting for ANCs and again provide an important economic boon to the Alaska economy. While the door has now been reopened, it is left to be seen whether the sole source procurements for ANCs will return to its pre-2011 activity. Stay tuned.

Recently, SBA published notice indicating that it will soon – possibly as early as late June 2018 – be commencing this pilot program. This exciting program could give both small business subcontractors and large business primes an additional tool to improve their chances of winning future contract awards. SBA has called for comments on the pilot program by June 19, specifically on the process outlined in SBA’s notice and SBA’s proposed application form for the pilot program (proposed SBA Form 2465).

Who is Eligible to Participate in the Pilot Program

In order to be eligible for the pilot program, a subcontractor must meet all of the following criteria:

Be a Small Business Concern;

Be without a Past Performance Rating as a prime contractor in CPARS;

The application must be made in connection with the Small Business Concern’s performance of a first-tier subcontract under a contract that requires a subcontracting plan;

Completed an application and submitted within 270 days after the Small Business Concern completed the work for which it seeks a past performance rating OR 180 days after the prime contractor completes work on the contract, whichever is earlier.

Subcontract value meets the mandatory CPARS level: exceed the simplified acquisition threshold (as defined in FAR 2.101) or subcontracts for architect-engineer services valued at $35,000 or more as provided in FAR 42.1502; and

Subcontractor is registered and active in the System for Award Management (SAM) located at www.sam.gov.

As seen above, the biggest restriction to this program is that to qualify the small business subcontractor cannot already have any past performance rating “as a prime” in CPARS. However, the pilot program does not necessarily limit a subcontractor to a single past performance review. Nothing prevents a subcontractor from receiving multiple past performance reviews as a subcontractor in CPARS under the pilot program. Small business concerns who only do work as subcontractors may be able to use this program multiple times, which could make them both a significantly more attractive teaming partner for large business primes and increase their own chances of winning prime contracts in the future.

How do Subcontractors Request a Past Performance Rating Under the Pilot Program?

An eligible small business subcontractor completes a SBA Form 2465, which includes, amongst other things, the subcontractor’s suggested performance ratings for each past performance element (i.e. self-ratings) and “justification and written evidence supporting [each] suggested rating.” The small business subcontractor then certifies the form and sends it to SBA’s Commercial Market Representative (the “Appropriate Official”) at SPPP@sba.gov.

The Appropriate Official forwards the SBA Form 2465 to the Prime Contractor and the Office of Small Disadvantaged Business Utilization (“OSDBU”). The OSDBU and Prime Contractor have 30 calendar days to concur with the small business subcontractor’s suggested ratings, or to contest the suggested ratings and provide justifications for disagreement.

If the OSDBU and the Prime Contractor both agree on a rating, or if either the OSDBU or Prime Contractor fail to respond and the responding person agrees with the small business subcontractor’s suggested ratings, the Appropriate Official shall enter the agreed-upon past performance rating in CPARS.

Alternatively, if the OSDBU and the Prime Contractor both fail to respond to the submitted SBA Form 2465 within 30 days, or if they disagree about the rating, or if either the OSDBU or Prime Contractor fail to respond and the responding person disagrees with the small business subcontractor’s suggested rating, the disagreeing persons (OSDBU and/or Prime Contractor) shall submit a notice contesting the application to the Appropriate Official. The small business subcontractor then has an opportunity to submit comments, rebuttals, or additional information relating to its past performance. The Appropriate Official shall enter into CPARS “a rating that is neither favorable nor unfavorable” along with the initial application from the small business subcontractor, any responses of the OSDBU, the prime contractor, and any additional information provided by the small business subcontractor.

How a Part Performance Review Issued Under the Pilot Program Can be Used

Congress included the following broad language in the legislation concerning the use of past performance reviewed issued under the pilot program: “A small business subcontractor may use a past performance rating given under [this pilot program] to establish its past performance for a prime contract.”

Why Large and Small Businesses Should be Interested in this Pilot Program

Past performance reviews are the life blood of source selection in federal procurement. Nearly every federal procurement will have a past performance evaluation criteria of some kind, and generally past performance is the second most important evaluation criteria (after price). While the law (FAR 15.305(a)(2)) requires that in “the case of an offeror without a record of relevant past performance or for whom information on past performance is not available, the offeror may not be evaluated favorably or unfavorably on past performance,” the reality is that contractors that receive neutral evaluations on the past performance factor rarely win a contract award, absent a major price advantage. Given the importance of the past performance reviews to the source selection process, especially those past performance reviews that reside in CPARS/PPIRS, the SBA’s Pilot Program for Small Business Subcontractor Past Performance Reviews can provide significant advantages for both large business primes and small business subcontractors.

For small business subcontractors the advantages are clear. The pilot program will allow small business subcontractors to get one (or potentially multiple) past performance reviews in CPARS if they do not already have a past performance review as a prime in CPARS. Moreover, because of the process for program, small business subcontractors will be able to receive a past performance review on their own terms, a distinct advantage from the circumstances a prime contractor encounters. The small business subcontractor will be able to propose ratings (which become the ratings default if not countered by the reviewers), they get to cherry-pick which projects/periods of performance to request past performance review for (which allows the small business to only request a past performance review when it knows its performance has been excellent), and the risk of a negative review is mitigated by the requirement that if their is disagreement on a rating the past performance review will be entered into CPARS with “a rating that is neither favorable nor unfavorable.” Given all these advantages, small business subcontractors without a review in CPARS as a prime should be able to use the pilot program to build a record of past performance, which will better enable them to compete for procurements as a prime contractor in the future, and which will make them a more attractive teaming partner to large business primes (as many source selections allow or require consideration of the past performance records of both the prime and major subcontractors).

This pilot program could also provide major benefits to large business primes that encourage their small business subcontractors to apply for past performance reviews. As already noted, many source selections allow or require consideration of the past performance records of both the prime and major subcontractors. Thus, large business primes often have an increased chance of receiving award if their subcontractors have a strong record of relevant past performance. Under the pilot program, the large business prime actually has influence on the past performance rating that its subcontractor receives, which essentially gives large business primes a role in improving their own team’s past performance record for use on future procurement. Large business primes should encourage the small business subcontractors that they frequently team with to take advantage of this pilot program, thereby allowing the large business prime to present a stronger record of past performance for its team in future procurements.

In the RAND Corporations’s 2018 report on DoD bid protests, RAND highlighted some concerning statistics regarding bid protests filed by small businesses. RAND discovered that more than 50% of protests were being filed by small businesses (more than double the percentage of prime contract dollars going to small businesses), and at GAO protests filed by small businesses tended to have significantly lower sustained and effectiveness rates, and were 50% more likely to be dismissed as “legally insufficient.” As a result of these findings, and others, RAND recommended that Congress consider approaches to reduce and improve bid protests from small businesses.

Please join the ABA Section of Public Contract Law Small Business Committee’s panel for a broad discussion of RAND’s findings and recommendations specific to small business protests, and the feedback RAND received concerning these recommendations. In addition, the panel will examine other approaches under consideration that were not included in the report, and will open the floor to a discussion on ideas to reduce and improve bid protests from small businesses.

SBA proposes to consolidate the All Small Mentor Protégé Program and the 8(a) Business Development Mentor Protégé Program into one program. This rule will also make other revisions in the Government Contracting programs, including the process for approving management changes in entity owned concerns.

According to SBA’s regulatory agenda, this proposed rule was estimated for release in March 2018. While that obviously did not happen, it is not uncommon for SBA (or other agencies) to issue proposed regulations months (or even years) after originally estimated.

For an 8(a) contractor, there is little (or arguably no) benefit to applying to the 8(a) Mentor-Protege Program (8(a) MPP) instead of the All-Small Mentor-Protege Program (ASMPP), and SBA reviews and approves mentor-protege agreements at a much faster rate if one applies to the ASMPP. While the ASMPP has been around for over a year now, many 8(a) contractors are still under the misconception that they need to be in the 8(a) MPP in order to bid as a joint venture on 8(a) set-asides. This is simply not the case, as the ASMPP provides the same advantages to an 8(a) protege as the 8(a) MPP. Consolidation of these two program should streamline the mentor-protege approval process, and result in the elimination of duplicative and confusing regulations. We eagerly anticipate the issuance of this proposed regulation to consolidate SBA’s two mentor-protege programs, and hopefully SBA will at the same time address some of the other problems with the mentor-protege regulations (such as eliminating the requirement for SBA to approve a joint venture agreement before award of an 8(a) contract).

With every new administration, there is both great uncertainty and opportunity in federal government contracting. To help you navigate the rough seas of doing business with the federal government in this new administration, we have assembled nationally recognized practitioners who will cover topics relevant to government contractors large and small, novice and seasoned. Session topics include:

– Ten Things Every Contractor Needs to Know When Doing Business with the Federal Government

Recently, the U.S. Export-Import Bank (EXIM) issued a proposal that would align its size standards for determining whether a business qualifies as a “small business” with the Small Business Administration’s (SBA) current SBA Loan Program standards. Such a change would decrease inconsistencies among the entities, and potentially increase EXIM lending opportunities for small businesses that otherwise do not meet the SBA’s industry-based size standards as defined under the North American Industry Classification System (NAICS).

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